How to Start Mining Cryptocurrency and What is Crypto Mining?

Cryptocurrency mining refers to bringing new coins of a digital currency into circulation. Unlike fiat, the production of cryptocurrencies is a rather complex process and is performed by network participants in a decentralized way.

Miners compete to solve cryptographic puzzles to win rights to verify and update crypto transactions on a blockchain. They get crypto coins as a reward for every successful update in the distributed ledger. Once this happens, the newly minted coins are made available for use in the crypto ecosystem. Miners earn incentives in two ways, from the party whose transaction they verify and from the blockchain for successfully adding a block.

The technique of verifying and validating a block for mining new coins is also known as the consensus mechanism. It is specific to the underlying blockchain design.

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Mining was initially a term used for blockchains that use proof-of-work as consensus. However, it has now become synonymous with generating coins for any blockchain due to the popularity of Bitcoin.

Cryptocurrency mining is categorized based on the type of processor or processing power used in the mining setup:  

In cloud mining, miners pay big companies to mine for them under a time-bound contract. These companies are equipped with the necessary computing power. Often called mining farms, they invest in and own the hardware and computing knowledge to mine profitably. The miner pays the company an agreed amount and earns in the cryptocurrency being mined. This offers a way to mine cryptocurrency without investing in the equipment. However, it is risky, as mining is competitive and, if the mining farm fails to mine enough, the investment by miners may not result in returns.

Using a desktop and its native processor to mine cryptocurrencies is known as CPU mining. With the growing popularity and competition of cryptos, the amount of computing power in terms of both speed and memory required to mine popular coins has risen manifold. Therefore, solo mining with a CPU has become less rewarding than previously, especially for the most popular cryptocurrencies. Miners can instead invest their computing power into mining new cryptos and gain exposure to the potential of making big bucks in case they become very popular. This requires thorough fundamental analysis before picking a cryptocurrency.

As graphics processors have higher processing capabilities than CPUs and only a little extra seed investment, they are more popular among individual miners. Although there is a slightly higher initial cost, the returns have been faster than with CPU or cloud mining. A typical GPU mining rig consists of graphics cards, a rig processor, a motherboard, cooling equipment, and a rig frame. The only additional cost to consider is the electricity to run the setup.

ASICs, or application-specific integrated circuits, are designed with a specific purpose, which may be to mine a particular cryptocurrency. For instance, a Bitcoin ASIC can be used only for mining Bitcoins. Being highly efficient, an ASIC-mining farm can skew the blockchain’s economy in its favour, resulting in centralisation of power. Some ASIC-resistant cryptocurrencies have spung up to ensure that decentralisation is maintained in the blockchain network.

In pool mining, a group of miners combine their computing power and share the mining rewards among themselves. This increases the miners’ probability of verifying transactions and adding new blocks. So, earnings are steadier and more predictable when working with mining pools. Pooling attracts individual miners, as stiffening competition makes it increasingly difficult to be successful as a solo miner.

Cryptocurrencies have different levels of mining difficulty, popularity, and price. Here are the steps to build a mining rig and start mining:

This requires miners to evaluate the investment and efforts needed in mining against the rewards. A miner must consider their level of technical skill to decide the consensus mechanism they wish to participate in. A single blockchain may have multiple projects, giving traders multiple opportunities to mine.

For instance, the massive competition for Bitcoin mining requires miners to have an extensive mining rig, while the rewarded number of coins is halved every 4 years. On the other hand, there is an increasing emphasis on the ‘greenification’ of the mining process to limit carbon emissions. What happens when Bitcoin mining goes green? Will existing rigs need a completely new setup? There are many other consensus mechanisms such as proof-of-time elapsed, proof-of-space, and proof-of-capacity.

Which Cryptocurrency to Mine?

While mining, it is essential to ensure the crypto gains in value and its transactions proliferate to make verification and validation rewarding. Fundamental analysis of the cryptocurrency, involving a study of the blockchain technology, the project leadership, the progress roadmap, and the whitepaper help identify the cryptocurrency to mine.

Mining is a competition and winning requires using the best equipment. The complete mining setup, including the hardware and software of the computing device, along with additional processors and coolers, forms the mining rig. Miners should consider GPU, pool, and solo mining options to evaluate which will be best for the difficulty level and profitability of mining the crypto chosen in the first step.

Mining Software

While selecting mining software, miners should consider the ease of use, security, difficulty of configuring, and available support from the community as well as the software provider, if needed. Additionally, it should be compatible with the existing hardware and be scalable if the miner needs to eventually increase their computing power. Since this is a one-time investment, choosing a good one is more important than the cost. There are some free options that one can try out.

Mining Hardware

Firstly, miners generally prefer dedicated computers to mine cryptocurrencies. Undoubtedly, ASICs are the fastest. However, one would need to ensure that the crypto is not ASIC-resistant. Additionally, choosing hardware with the low power requirements and heat dissipation may incur a high initial cost but will help reduce running costs.

A crypto wallet stores the keys that allow access to the crypto coins earned from mining. Some wallets support multiple blockchains and allow the miner to access more opportunities to verify transactions and validate blocks.

Configuring the device means using the software to download the blockchain state. Experts advise to include a mechanism to monitor electricity consumption. Crypto mining is a 24×7 activity with unending updates to the blockchain. After all, that is what makes earning possible. So, the computer must remain online to keep up with the latest state of the blockchain. Miners need to choose a location to manage the heat dissipated and sometimes the mechanical hum with the constant running of the mining rig.

Mining pools help maximise opportunities and stabilise earnings. Therefore, beginners might consider joining a mining pool to get additional support and learn the nitty-gritties of the mining industry. A good practise is to align the hardware and software to that of the group to improve coordinated functioning.

Mobile miners, wishing to connect to the blockchain and mine crypto by phone, are working with less computing power in a competitive environment, so many choose to join mining pools that combine the computing power of all participants, for a greater chance of validation success.

The answer to this question depends hugely on the investment and the blockchain selected. Setting up a rig and the electricity bills can offset profits, especially for popular cryptocurrencies with intense competition.

Here’s how to maximize your chances of profiting from crypto mining:

• For those with technical knowledge, identifying high-potential altcoins with a setup requirement within their budget can be helpful. Rigorous fundamental analysis, reading expert comments, and an understanding of the business roadmap can help pick a coin.
• For those who wish to mine cryptocurrencies with personal computing setups, joining mining pools is the way to go, as this supports steadier returns in the longer run. One can look for a group of enthusiastic miners of their chosen coin.
• If one is interested but does not possess the technical knowledge needed to mine cryptocurrencies, paying mining farms to mine is an option worth considering. Their returns may be lower but are quicker than investing in setting up the mining infrastructure and learning to mine.
• To mine cryptocurrency for free, one can begin with a mobile app that offers some activities like playing a game or walking a certain number of steps. It is a good idea to research well before choosing an app and committing your time to it. Often, they require paid upgrades after certain milestones have been reached. Moreover, one needs knowledge to stay safe from scams.

Crypto mining is gaining popularity as a mode of earning from the digital currency ecosystem. For those who are starting out, the mining strategy needs to be aligned with the investment potential and technical knowledge to make the most of this unique class of assets. Always do thorough research before committing capital to mining.